Britain has entered a recession that could be "deeper than any that we have known", a senior minister warned in the gloomiest government assessment of the economic turmoil ahead.
Tessa Jowell, the Olympics minister, appeared to contradict Alistair Darling, the Chancellor, who has predicted the economy will start recovering next summer. She made the forecast as new figures suggested last month's cut in VAT had only had a modest impact on the high street, with sales down by more than 4 per cent since last year.
Ms Jowell was asked whether it had been right for Britain to bid to host the 2012 Olympics at a cost of more than £9bn. She told the BBC: "We were right to go because of the sporting legacy that the Olympics will create. But, as it turns out, facing a recession deeper than any that we have known, almost certainly the Olympics is economic gold at a time of economic need."
George Osborne, the shadow Chancellor, said: "This is a stunning admission of the true disaster Gordon Brown and the Labour Government has visited on the country. For months they tried to pretend Britain would be better off than in previous recessions. Now someone who sits around the cabinet table admits it will be worse."
Mr Darling later conceded that the City was likely to be hit hard.
The research organisation Synovate Retail Performance said the number of non-food shopping trips in the first week of December was down by 4.1 per cent compared with 2007.
In a fresh attempt to stimulate the housing market, the Government yesterday promised an extra £100m to help first-time buyers.